LONDON, June 29 — The dollar was headed for its biggest monthly gain in nearly a year on Monday, supported by the growing chances of rate rises and optimism about the United States (US) economy, as investors watched developments in the Gulf ahead of a key jobs report later this week.
The US and Iran traded fresh attacks over the weekend before they agreed to stop and meet in Qatar on Tuesday, leaving investors nervous about the declared ceasefire and nudging oil prices higher.
The euro edged up 0.2 per cent to US$1.1399 after reaching a 13-month low against the dollar last week; it was on track for a 2.4 per cent monthly decline.
The dollar index, which tracks the performance of the US currency against six others, was steady at 101.34, near last week's 13-month high. The dollar itself has risen against every major currency this month, performing the strongest against Scandinavian and Antipodean currencies, which have lost between 4.7 per cent and seven per cent.
Rising inflationary pressures, together with a surprisingly hawkish debut by US Federal Reserve chair Kevin Warsh, have upended market expectations for rate cuts this year, while the artificial intelligence-driven boom in US equity markets has attracted capital at breakneck speed.
As such, the dollar is heading for a 2.5 per cent gain for June, its biggest monthly rise since July 2025.
"That is quite significant because since April of last year, there has been so much discussion about the structural decline in the value of the dollar. But I think, even if you vehemently believe that, you have got to admit that there is space for a cyclical uptrend.
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"This is exactly what we have. Some of this can be attributed to the fact that the expectations around Fed interest rate hikes were later (in being priced in) than, say, for the Bank of England and European Central Bank (ECB), which hit right at the beginning of the war.
"But also, if we look at the stock market, what we have — particularly since the start of the war - is this asset allocation very much in favour of the US," said Rabobank chief FX strategist Jane Foley.
According to the London Stock Exchange Group's data, weekly data from the US market regulator showed investors held their largest bullish position in the dollar relative to other major currencies since 2019, valued at about US$36.4 billion.
ECB forum, US jobs data in focus
Later this week, the monthly US employment report could give investors a greater sense of how accurately markets are pricing the chances of US Fed rate hikes this year. Right now, money markets indicate traders fully expect one rate hike this year, with roughly a 50 per cent chance of a second.
Elsewhere, the pound held steady around US$1.321, just above last week's seven-month lows, ahead of a key speech later in the day from Labour politician Andy Burnham, the top candidate to replace Keir Starmer as the United Kingdom's Prime Minister.
The Japanese yen was at 161.83, unchanged on the day and around its lowest point in 40 years, while the Swiss franc strengthened modestly for a third day to 0.8092, not far off last week's 11-month lows.
The ECB's annual forum starts on Monday, opening with remarks by President Christine Lagarde, followed by a key policy panel on Wednesday that features Warsh, whose comments will come under close scrutiny from investors seeking more insight into the new US Fed chief's thinking on the outlook for rates.
